The SEC's 'Dear CFO' letter sent to public companies in October, 2010, posted on the SEC's website October 29, addresses "Accounting and Disclosure Issues Related to Potential Risks and Costs Associated with Mortgage and Foreclosure-Related Activities or Exposures."

Letter Lists Specific Disclosures 'To Be Considered'Issued by staff of the SEC's Division of Corporation Finance, the October 29 'Dear CFO letter' contains a lengthy list of specific disclosures that "should be considered" in connection with mortgage (and mortgage securitization and sale-related) and foreclosure related activities.

Reminder Of MD&A RequirementsThe letter also includes a reminder of certain MD&A requirements, including "any known trends or any known demands, commitments, events or uncertainties that you reasonably expect to have a material favorable or unfavorable impact on your results of operations, liquidity, and capital resources" (Item 303 Reg. S-K), and "legal proceedings, including proceedings known to be contemplated by governmental authorities" (Item 103 Reg. S-K).

Loss Accruals, Including LitigationThe SEC's October 29 'Dear CFO' letter also includes a reminder of current requirements for loss accruals and disclosures of contingencies, including Litigation-related contingencies, as currently required under FAS 5 (ASC SubTopic 450-20), and Rule 10-01(a)(5) of Reg. S-X. [Separately, The FASB recently announced that any new disclosure requirements under its proposed amendment of FAS 5 would not take effect this year, see our earlier post.]

Not Limited To Financial Institutions; Consider 'Similar Issues'Significantly, although the Dear CFO letter was issued by the SEC to "certain public companies as a reminder of their disclosure obligations to consider in their upcoming Form 10-Qs and subsequent filings, in light of continued concerns about potential risks and costs associated with mortgage and foreclosure-related activities or exposures," the staff of the SEC take pains to note in the letter that:

the list of disclosures to be considered is "not an exhaustive list" (see paragraph 2 of letter, and 3rd last paragraph of letter),

the list of items to be considered, are, 'without limitation' to those items (paragraph 2 of letter).

Perhaps most significantly [in my view, see disclaimer on right side of this blog], public companies besides financial institutions should take note of the closing paragraph in the SEC's Dear CFO letter, in determining if the disclosures set forth therein are applicable to them:

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Some of these issues are not limited to financial institutions that sold or securitized mortgages or mortgage-backed securities. Issuers that engage in mortgage servicing, title insurance, mortgage insurance, and other activities relating to residential mortgages should also consider the impact of these and similar issues for their disclosures.